Southwest Airlines Co. (NYSE: LUV) today announced it has reached an agreement in principle with the United States Department of Treasury about the general terms expected on the Payroll Support Program under the CARES Act. Under the agreement in principle, Southwest will receive the funding support necessary to protect the jobs of its more than 60,000 Employees through at least September 30, 2020, with the fundamental goal to maintain the carrier’s unprecedented 49-year history absent a single involuntary furlough.
“We are extremely appreciative of the work of our federal leaders. President Trump, Secretaries Mnuchin and Chao, and the entire United States Congress recognize the unprecedented health and economic crisis that our nation is currently facing due to COVID-19, as well as the importance of airlines to our overall national economy, the supply chain, and the nation’s future recovery after this crisis subsides,” said Southwest Chairman and CEO Gary Kelly.
Southwest’s expected loan is $3.2 billion, consisting of more than $2.3 billion in direct payroll support and a nearly $1 billion unsecured term loan . The loan is expected to have a 10-year term with low interest rates and may be repaid at any time prior to maturity at par. The loan is expected to include approximately 2.6 million warrants issued to the U.S. Department of Treasury. The program includes certain conditions, such as: prohibitions against involuntary furloughs and reductions in employee pay rates and benefits through September 30, 2020; the elimination of share repurchases and dividends until September 30, 2021; and limits on executive compensation until March 24, 2022.